When it all goes to Plan… TRX Re-Distribution

I promised an update on this post, so let’s recap on where we were initially and my thoughts on the re-distribution process for TRX.

Below you’ll find my original post, please skip forwards to the latter half of this article if you’ve already seen the background to this. If this is your first time here I’d recommend reading through as I provide a lot of the early indicators I used for identification in this process.

Identification of the Range

Firstly TRX has been in a long downward trend for some time. We then see (as we did across all major alts) a spike in volume and activity. This broke the downward trajectory and offered a brief respite in price action.

Re-distribution as a Concept

Reaccumulation is a pause in an uptrend, simply put it’s where absorption takes place for a continuation of the uptrend. Absorption is the process of removing stock from the marketplace in anticipation of a major uptend. This is primarily the activity of the Composite Operator whom has the purchasing power to remove meaningful quantities of stock from active daily trading. The knock-on effect of absorbing stock is that it greatly reduces volatility.

At the beginning of Reaccumulation, volatility is high as a result of the many speculator and trader types who have latched onto the prior uptrend. The early corrections against the uptrend are quick and volatile as shorter term investors take profits. Then, as the sideways trading range develops, the corrections become more dull and contained. This is because the C.O. and institutions are putting bids in to buy shares on pullbacks. These orders create support for the stock price. Often the last half of the time spent in the Reaccumulation trading range sees the price making a series of higher lows. Recall that a primary objective of the C.O. is to carefully accumulate shares in such a way that they don’t force prices to begin the uptrend before all of their buying is completed.

Contrast that with the activity taking place during Redistribution. Bear market downtrends tend to be volatile. Short covering causes spikes in prices. These rallies often mark the beginning of the Redistribution. Sharply rising prices tend to drive out short-sellers and cause the desired shakeout effect. What happens during Redistribution is that a series of rallies and declines remove as many shorters from their position as possible. Once this series of rallies has concluded the downtrend usually returns in force and with a bang.

Re-distribution often comes in a range of structures which can make things incredibly difficult to analyse. We have to try and identify where possible the correct elements to determine moves. As you would have learned while studying chart formations (if that’s your thing) you trade the breakout or the retest, the same applies with Wyckoff. If you label your charts and consider your analysis there are ample opportunities to open a trade and you will have suitable stop positions that invalidate the approach.

TRX as the Current Example

You can see the long downtrend for TRX, we then break structure and enter a period of sideways action.

The first thing I note here is the increase in volume across the range, volume remains high throughout the range so far and in some areas we’ll explain in more detail.

We see a traditional Selling Climax on August 13th resulting in a huge spike of volume before an automatic reaction into the Buying Climax (BC). This is the first scrap of evidence we can use to determine the range and plot our TR boundaries. At this stage it could easily be accumulation, we’ve seen a downtrend and perhaps we’re pausing to build a case for the new uptrend beginning.

As we move through the range buying volume increases, we see natural points to label as our AR (to the BC) our first ST and our first Signs of Weakness (SOW). Notice the similarities at this point to the classic distribution formation.

We have to use volume to determine the differences between spring tests and signs of weakness. Giving our first potential clues to accu vs dist.

SOW — sign of weakness, observable as a down-move to (or slightly past) the lower boundary of the TR, usually occurring on increased spread and volume. The AR and the initial SOW(s) indicate a change of character in the price action of the stock: supply is now dominant.

We see in this move that volume is increased through the SOW, price finishes below the AR giving us our future reference point for the rest of the potential range.

Next is the move to the Upthrust (UT).

In distribution, phase C may reveal itself via an upthrust (UT) or UTAD. An upthrust is the opposite of a spring. It is a price move above TR resistance that quickly reverses and closes in the TR. This is a test of the remaining demand. It is also a bull trap — it appears to signal the resumption of the uptrend but in reality is intended to “wrong-foot” uninformed break-out traders. A UT or UTAD allows large interests to mislead the public about the future trend direction and to sell additional shares at elevated prices to such break-out traders and investors before the markdown begins. In addition, a UTAD may induce smaller traders in short positions to cover and surrender their shares to the larger interests who have engineered this move.

Buying volume spikes during the movement upwards, bull trap success? It is almost immediately pulled back into the TR. We then see a follow up attempt on reduced volume to break the high of the UT. This fails and provides yet another opportunity to entice breakout traders and to shakeout those who entered short positions in the UT.

Entering short during an upthrust usually has a solid R:R. It provides a clear stop to help contain your trade and invalidate the approach. Be careful though, as with this example of TRX you can and probably will be the target of multiple shakeouts trying to remove you from what will potentially become a very profitable position.

From the shakeout we see a decline in volume before our huge sell spike (we all know what happened that day).

The spike takes us back below the TR and into the SOW zone. During this phase we would expect to see multiple rallies to try and hold the TR. These (if this is redistribution should end in failure). They also represent opportunities to initiate or add to short positions.

What’s Next?

Given this is such a micro-TF analysis the range could continue with multiple tests of supply. The channel below may not stay in-tact but it provides another reference point. The volume reaction to each side of the channel has been a nice link so far.

Summary

Where are we now?

When I first documented my thoughts on this range I’d just added to my position at 330. We’d seen a reaction to the AR level with a move back up inside the TR. The action was stopped around the mid-point resistance for the TR.

Once a re-distribution range fails to take back a level such as this, it’s usually one of the best times to add to your position. The channel I drew seemed to hold very well, acting as resistance once prices reached it, there was a very good reaction back to the mean.

There are two areas to acknowledge next and both correlate with volume. Notice the higher volume candle on the break of the TR established by the bottom of the AR. This is a really strong sign for re-distribution. We then get a challenge back to the TR break at 319, another fantastic opportunity to add to a short position.

The next volume spike comes on the break of the SOW again we see a small rise in volume spread across several hours. Once the SOW is broken the snowball effect really kicks in. Often once the SOW is completely broken there is little opportunity to add to your position as the drop is quick and unrelenting.

That leaves us with targets. During the markdown I’ll be taking profits at 260. I’ll also be looking for any high volume areas that display the characteristics of forming a Selling Climax. If this channel is broken on high volume, that will be a good place to start, reassess and try to discover the signs for the next range.

This has undoubtedly been one of the best re-distribution ranges I’ve traded in a while, it followed my plays perfectly and gave the entries I wanted for additions to my short. I couldn’t have asked for much more really. I mean, just look at this in Renko.

I hope to add one final update to this piece once the range has concluded, I’ll look to identify some of the key signals for the formation of a new range.

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